The Expanded Accounting Equation is derived from the common accounting equation and illustrates in greater detail the different components of stockholders' equity in a company. The expanded accounting equation uses the basic accounting equation to show the effect that accounting transactions have on retained earnings and equity. The ABC model provides a more detailed depiction of how retained earnings or equity are affected by an accounting event or transaction. An example of this is the recognition of an asset on the balance sheet.
The equation is derived from the common accounting equation in which the basic equation is:
**Total assets = Total Liabilities + Total Equity**
The expanded accounting equation breaks down the assets, liabilities and stockholders' equity components of the total assets into their respective elements. The expanded version of the accounting equation contains a further breakdown of assets (including liabilities, equity and retained earnings), which are allocated to other factors. These other factors include tangible capital, intangibles and goodwill. 
